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The Ted Spread

RSS By: Ted Seifried, AgWeb.com

Ted is the Chief Market Strategist and Vice President in charge of the Zaner Ag Hedge Group and specializes in agricultural hedging employing various strategies using futures, futures spreads, outright options and option combinations. He believes it is paramount to be able to use different strategies to adapt to market conditions. Ted works with large to mid size grain and livestock producers and end users in North, Central and South America.

Grains Pull Off Highs in a Big Way

Jul 24, 2012

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.   

 

I have gotten a lot of calls today asking if that the high in grains or is this just a correction in a bull market?  That is a very hard question to answer.  We have not gotten a full-coverage, soaking rain to turn the drought situation around.  However some things have changed in the markets.  With a US Dollar looking to break out, poor China economic data, and weather concerns becoming less of a topic of focus we certainly have our reasons to retreat from highs.  The question really needs to be - has enough changed to end this enthusiastic bull run?

Most likely what we are seeing in the grains is not a reversal of trend, at least not yet.  We could be in the beginning of a toping formation but with the amount of energy spent in this rally I would think that it is highly unlikely that we would give up the gun so easily.  We could see this high volatility continue, and we could still see new highs.  However, with what we have done in the last two days it now becomes much more likely then last week that we could be in the beginning to middle stages of a topping formation.  From a technical perspective, two key reversals in soybeans in 3 weeks is a big red flag.

CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie

It is not imposable for me to build a case for highs being in at this time.  During this rally everyone has been concerned with the supply side of the balance sheet.  There has been little talk of demand, however we need to be thinking about what these high prices mean for demand and who can turn a profit at $8.00 corn and $17.00 soybeans?  I'm not sure if that can be sustained for long periods of time with a higher US dollar, crude oil under $100 and 118 fat cattle.

My advice today has been not to sell in a panic, but look for a bounce back toward highs and if the grains fail to make new highs then look to take advantage of these prices.  This might not be a top, but it is a stark reminder of what happens when the market turns.

Options on Beans for People Who Don`t Know Beans About Options: http://www.zaner.com/offers/?page=8&ap=tseifrie

With high volatility in a weather market, option strategies may be a good tool for hedgers and specs alike.

December Corn Daily chart:

November Soybeans Daily chart:

All this means that speculators should be looking for opportunities and producers need to look to lock up some prices while we have new crop corn above $7.70 and new crop soybeans above $16.00. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent.

Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs.

Be safe!

Ted Seifried (312) 277-0113 or tseifried@zaner.com

Please check out my Blog at: http://tedseifriedfutures.com/

Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?rid=Seifried

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION

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